Smooth the wayRe-energising investments, especially Indian investment, should be the top priority
What has been achieved and the opportunities foregone aptly define the terms set out for taking India-Nepal economic cooperation to new heights. Under a new democratic system with the additional provision of federalism, Nepal is passing through a phase where a competitive polity is enforcing the market economy to set its dynamics. Indian firms are the biggest investors in Nepal, accounting for about 40 percent of the total approved foreign direct investment (FDI).
In 2016-17, Nepal imported $6.1 billion worth of goods and services from India and exported goods valued at a little over $400 million, resulting in a trade deficit of more than $5.7 billion. Nepal hopes to correct this trade imbalance by attracting more Indian FDI into the country. However, it is imperative that India come to terms with the issues stalling its inland power and infrastructure projects in Nepal and positively resolve them on a priority basis. India’s investment in Nepal is majorly routed to these two sectors.
India needs to acknowledge the politics of bilateral economic talks. To maintain India’s traditional edge in Nepal, it should rely on the basics and let the main channel work in its favour. Only time will tell how the deliberations are going to be translated into action, but for sure, India has to look at Nepal in a new light—based on terms of equality. Coming to the eight-nation South Asian Association for Regional Cooperation (SAARC), the Nepali business community believes that a leadership role by India will be critically important at this point where there is a growing sense of protectionism across the globe.
To do damage control in the South Asian region, reviving SAARC, the South Asian Free Trade Agreement (SAFTA) and the South Asian Preferential Trade Agreement (SAPTA) and strengthening the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) are prerequisites for leveraging the potential economic benefits to be offered through regional and sub-regional cooperation. However, impediments like overvaluing regional and national political agendas over regional and national economic interests have to be defeated.
Rationalisation in trade terms would depend much on the political will of the concerned policymakers; and if it works positively, the South Asian region could witness free movement of trade, services and people across borders. Open borders would yield much better outcomes if they get promoted as gateways for trade and productive mobility. In modern times, it is essential to customise cross-border trade and transit dealings. A poor industrial base combined with scarce local employment opportunities force Nepalis to migrate en masse to employment destinations. As the phenomenon is not reflective of healthy upward mobility, the economics of the land calls for an immediate and active interface with politics.
Nepal has no rail network beyond a symbolic small stretch, and capacity expansion is something that should be done on a priority basis. Telecom and postal cooperation, which has great potential to foster civic ties, is also in want of a makeover. The benefits of economic cooperation between Nepal and India is still not trickling down to places near the border. India is the world’s largest milk producer. It reached this position through early adaptation of technology and impressive cooperative movements, not through keeping high numbers of cattle alone. Nepal is a milk deficit country, but its plains are conducive for a white revolution. So it should seek India’s overall expertise and try to create a success story like that of Amul in Gujarat.
To streamline Indian investment in Nepal’s hydropower sector, policymakers have to address certain long pending issues regarding land acquisition. There are numerous instances where land-related matters have caused hassles at construction projects. Nepal is a signatory to the International Labour Organisation convention on indigenous and tribal peoples, 1989 (ILO-convention 169), and this is often cited as being one of the stumbling blocks. However, with certain reforms in the existing practices, the perception can be improved.
On key infrastructure projects, Nepal should sensitise the Indian side to live up to its commitments for major road and railway projects. Because of political transition and lack of proper cross-border connectivity, economic prospects in Madhes have suffered immensely. At the entry level, the industrial concerns of Indian investors have to be addressed. The rules and regulations should be well placed to facilitate the entry and exit of businesses. There should be no bureaucratic hurdles to undermine entrepreneurial efforts that help develop the national economy. Good economics should triumph over all hurdles, and re-energising investments to Nepal, especially Indian investment, should be the top priority of Kathmandu.
Thakur is a New Delhi-based columnist with a keen interest in South Asian affairs.